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If merchandise costing $500 is sold on account for $620,how is this transaction recorded when using a perpetual inventory system?


A) Debit Accounts Receivable,credit Sales Revenue for $620;debit Cost of Goods Sold,and credit Inventory for $500.
B) Debit Accounts Receivable and credit Sales Revenue for $620.
C) Debit Cash and credit Sales Revenue for $620;debit Cost of Goods Sold and credit Inventory for $500.
D) Debit Accounts Receivable and credit Sales Revenue for $620;debit Inventory and credit Cost of Goods Sold for $500.

E) None of the above
F) All of the above

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Which line item would be found on a merchandiser's balance sheet and not on a service firm's?


A) Supplies
B) Cost of Goods Sold
C) Inventory
D) Sales Revenue

E) A) and B)
F) A) and C)

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Sales Discounts is a ________ account with a normal ________ balance.


A) contra-asset;debit
B) contra-revenue;credit
C) contra-asset;credit
D) contra-revenue;debit

E) B) and C)
F) All of the above

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The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Northview Company as they appear on the company's adjusted trial balance.  Accounts Payable $30,000 Accounts Receivable 33,000 Inventory 60,000 Advertising Expense 36,000 Cost of Goods Sold 267,000 Delivery Expense 18,000 Income Tax Expense 6,000 Insurance Expense 3,000 Rent Expense 36,000 Sales Revenue 480,000 Sales Discounts 33,000 Sales Returns & Allowances 57,000\begin{array}{lr}\text { Accounts Payable } & \$ 30,000 \\\text { Accounts Receivable } & 33,000 \\\text { Inventory } & 60,000 \\\text { Advertising Expense } & 36,000 \\\text { Cost of Goods Sold } & 267,000 \\\text { Delivery Expense } & 18,000 \\\text { Income Tax Expense } & 6,000 \\\text { Insurance Expense } & 3,000 \\\text { Rent Expense } & 36,000 \\\text { Sales Revenue } & 480,000 \\\text { Sales Discounts } & 33,000 \\\text { Sales Returns \& Allowances } & 57,000\end{array} Net income would be:


A) $24,000.
B) $27,000.
C) $30,000.
D) $42,000.

E) A) and D)
F) A) and C)

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Holly uses a perpetual inventory system.Holly sells $3,500 of blue jeans.The customer later brings $420 of blue jeans back to Holly because they are defective.Those blue jeans had a cost of $140.The customer agrees to keep the blue jeans and Holly agrees to a $140 allowance.Which of the following is one of the entries that Holly will use to record the return?


A) Debit Cash for $140 and credit Inventory for $140.
B) Debit Inventory for $140 and credit Cash for $140.
C) Debit Cash for $140 and credit Sales Revenue for $140.
D) Debit Sales Revenue for $140 and credit Cash for $140.

E) A) and D)
F) B) and C)

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Seasons has sales of $42,000,beginning inventory of $4,900,purchases of $24,500,and ending inventory of $3,500.The cost of goods sold is:


A) $29,400.
B) $25,900.
C) $16,100.
D) $23,100.

E) A) and B)
F) A) and C)

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Over a two-year period,Orchid Co.'s gross profit percentage went from 70.4% to 69.7%.Which of the following could not have been the cause of this change?


A) Reduced selling prices
B) Rising product cost as a percentage of sales
C) Increased competition from a competitor
D) An increase in selling price

E) A) and B)
F) A) and C)

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Jackson Manufacturing Company had a beginning inventory of $30,000.During the year,the company recorded inventory purchases of $90,000 and cost of goods sold of $100,000.The ending inventory must equal:


A) $20,000.
B) $50,000.
C) $52,000.
D) $54,000.

E) A) and D)
F) B) and C)

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In order to calculate shrinkage:


A) both periodic and perpetual inventory systems are needed.
B) a periodic inventory system is more effective.
C) a perpetual inventory system requires an occasional count of actual inventory.
D) it does not matter which system one uses.

E) None of the above
F) B) and D)

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On October 1,Robertson Company sold inventory in the amount of $5,800 to Alberta,Inc.with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Robertson uses a periodic inventory system.Alberta pays the invoice on October 8 and takes the appropriate discount.What journal entry will be recorded by Robertson on October 8?


A) Debit Cash and credit Accounts Receivable for $5,800.
B) Debit Cash and credit Accounts Receivable for $4,000.
C) Debit Cash for $3,920,debit Sales Revenue for $80,and credit Accounts Receivable for $4,000.
D) Debit Cash for $5,684,debit Sales Revenue for $116,and credit Accounts Receivable for $5,800.

E) B) and C)
F) A) and D)

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Broad,Inc.had a beginning inventory of $50,000 and an ending inventory of $80,000.Its Cost of Goods Sold for the year was $970,000.What was the amount of purchases that it made for the year?


A) $940,000
B) $1,000,000
C) $1,050,000
D) $1,060,000

E) None of the above
F) B) and C)

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Which inventory system updates the inventory account only at the end of the accounting period?


A) LIFO
B) Perpetual
C) FIFO
D) Periodic

E) A) and D)
F) A) and C)

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Match the term to the appropriate definition.There are more definitions than terms. -Merchandising Company


A) The sum of beginning inventory and purchases for the period.
B) Presents important subtotals,such as gross profit,to help distinguish core operating results from other,less significant items that affect net income.
C) A term of sale indicating that goods are owned by the seller until they are delivered to the buyer.
D) Sells goods that have been obtained from a supplier.
E) Inventory records are updated every time inventory is bought,sold,or returned.
F) A sales price reduction given to customers for prompt payment of their account balance.
G) Inventory records are updated at the end of the accounting period.To determine how much merchandise has been sold,inventory must be physically counted at the end of the period.
H) A term of sale indicating that goods are owned by the buyer the moment they leave the seller's premises.
I) Sells services rather than physical goods.
J) Assets acquired for resale to customers.

K) C) and E)
L) C) and H)

Correct Answer

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Multistep income statements:


A) are required for merchandise companies.
B) contain more detail than just listing revenues and expenses.
C) are required when the perpetual inventory method is used.
D) classify Cost of Goods Sold as a selling expense.

E) A) and B)
F) A) and C)

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Madison Manufacturing's ending inventory count was $65,000,cost of goods sold was $35,100,and purchases were $72,800,its beginning inventory must have been:


A) $42,900.
B) $172,900.
C) $102,700.
D) $27,300.

E) None of the above
F) A) and D)

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Sleepy Head Coffee Shop buys coffee,mugs,and pastries from Morning Show Co.for sale to consumers.What type of company is Sleepy Head Coffee Shop?


A) Retail merchandiser
B) Wholesale merchandiser
C) Manufacturer
D) Service business

E) A) and D)
F) A) and C)

Correct Answer

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Match the term to the appropriate definition.There are more definitions than terms. -Multistep Income Statement


A) A ratio indicating the percentage of profit earned on each dollar of sales,after considering the cost of products sold.
B) A sales price reduction given to customers for prompt payment of their account balance.
C) Presents important subtotals,such as gross profit,to help distinguish core operating results from other,less significant items that affect net income.
D) Expresses the relationship between inventory on hand,purchased,and sold;shown as either BI + P - EI = CGS or BI + P - CGS = EI.
E) Refunds and price reductions given to customers after goods have been sold and found unsatisfactory.
F) A cash discount received for prompt payment of a purchase on account.
G) The cost of inventory lost to theft,fraud,and error.
H) Net sales minus cost of goods sold.It is a subtotal,not an account.
I) A reduction in the cost of inventory purchases associated with unsatisfactory goods.
J) The sum of beginning inventory and purchases for the period.

K) F) and H)
L) E) and J)

Correct Answer

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Coranado Company purchases $70,000 of inventory from a wholesaler who allows 45 days to pay.In addition,the wholesaler offers a 3% discount if payment is made within 12 days.These payment terms would be expressed as:


A) 0.03/12,n/45.
B) n/45,3/12.
C) n/45,0.03/12.
D) 3/12,n/45.

E) A) and B)
F) A) and C)

Correct Answer

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Polk Company uses a perpetual inventory system and had the following transactions during November: November 6-Purchased $8,700 of inventory on account,terms 2/10,n/30. November 8-Returned $1,200 of defective units and received full credit. November 15-Paid the amount due. What journal entry will be recorded by Polk Company on November 8?


A) Debit Inventory and credit Cost of Goods Sold for $1,200.
B) Debit Accounts Payable and credit Inventory for $1,200.
C) Debit Inventory and credit Accounts Payable for $1,200.
D) Debit Accounts Payable and credit Purchase Returns for $1,200.

E) A) and B)
F) B) and C)

Correct Answer

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After performing a physical count of inventory at the end of the accounting period,it was discovered that the amount of inventory on hand was less than the accounting records reported.The entry to record this inventory shrinkage includes:


A) credit to Cost of Goods Sold.
B) debit to Inventory.
C) credit to Purchase Discounts.
D) credit to Inventory.

E) None of the above
F) All of the above

Correct Answer

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